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Economics 105 > Midterm 2 > Flashcards

Midterm 2 Flashcards

1
Q

Savings (National)
(Calculation)

A

Y-C-G

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2
Q

Savings (Private)
(Calculation)

A

Y-T-C or I + Government Deficit Budget

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3
Q

S (Public)/Government
(Calculation)

A

T-G

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4
Q

Net Taxes
(Calculation)

A

Total taxes - transfer payments - interest

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5
Q

Net Capital Inflow
(Calculation)

A

Export - Import or Import - Savings (National)

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6
Q

Why do people save?

A

Life cyle saving
Precautionary Saving
Bequest saving (Inheritance)

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7
Q

Real Interest Rate formula (Fisher’s Equation)

A

r = R - π

r - Real interest rate
R - Nominal interest rate
π - Inflation rate

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8
Q

Fisher Effect

A

Increase in inflation, increase in nominal interest rate by the same amount

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9
Q

3 Tasks of Financial System

A

Reduce transaction cost
Reduce risk
Liquidity

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10
Q

4 Types of financial assets

A

Loans
Bonds
Loan Backed Securities
Stocks

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11
Q

Financial Asset

A

Paper claim that entitles the buyer to future income

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12
Q

Physical Asset

A

Tangible object used to make future income

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13
Q

Liability

A

Requirement to pay income in the future

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14
Q

Net worth
(Calculation)

A

Assets - Liability

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15
Q

Flow

A

Measure per unit of time (saving)

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16
Q

Stock

A

Defined point in time (wealth)

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17
Q

Capital Gain

A

Asset increased in value

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18
Q

Capital Loss

A

Asset decreased in value

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19
Q

What is asset price determined by?

A

Fundamentals
Future Expectations

20
Q

Currency in circulation

A

Cash held by the public

21
Q

Checkable bank deposits

A

Bank account which people write cheques

22
Q

Money Supply

A

Total value of financial assets in economy that are money

23
Q

Uses of Money

A

Store of value
Medium of exchange
Unit of account

24
Q

Types of money

A

Commodity money
Commodity-backed money
Fiat money

25
Q

M1
(Calculation)

A

Currency + Checkable deposits

26
Q

M2
(Calculation)

A

M1 + Savings and term deposits (that can be easily converted to M1)

27
Q

Functions of central bank

A

Banker for commercial banks
Banker for federal government
Issues currency
Conducts monetary policy

28
Q

Tools to control money supply

A

Reserve requirements
Bank interest rate
Open-Market operations
Government deposit switching

29
Q

Overnight funds market

A

Market where banks lend each other money overnight

30
Q

Bank Rate

A

Central Bank has reserve requirement

When cheques are cleared, banks gain or lose deposits.

If bank doesn’t have enough, it borrows money from other banks in overnight funds market.

31
Q

Open Market Operation

A

Monetary policy used by central bank to control money supply. They deal with T-bills

32
Q

Open Market Purchase

A

Central Bank buys T-bills from commercial banks. Done during recession or to add money supply

33
Q

Open Market Sale

A

Central Bank sells T-bills to commercial banks. Usually done when they want to lessen money in circulation.

34
Q

Quantity Theory of Money
(Calculation)

A

M * V = P * Y

M - Money supply
V - # of times money is used
P - Price level
Y - Real output

35
Q

Inflation
(In respect to Quantity theory of money)

A

Money Supply growth rate (%M) - Real output growth rate (%Y)

36
Q

Reserve Ratio

A

Portion of deposit bank keeps

kept amount/total

37
Q

Multiplier
(Formula)

A

1/(1-MPC)

38
Q

Consumption Function

A

c = a + MPC*yd

c - consumption
a - fixed spending
MPC - marginal propensity to consume
y - household disposable income

39
Q

Investment Spending Dependencies

A

Interest rate
Future expectation of GDP
Current production capacity
Accelerator principle

40
Q

Aggregate Expenditure
(Calculation)

A

C + I(Planned)

41
Q

GDP (in terms of investment)

A

C + I(Total)

42
Q

Equilibrium for Investment

A

GDP = AAggregate Expenditure

43
Q

What does it mean if I (Unplanned) is negative?

A

That means demand was greater than the planned inventory they had. (Sales are higher than expected)

44
Q

Bubble price meaning

A

Price increases due to unrealistic expectations for an asset

45
Q
A

Economics 105 (1 decks)

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